Abstract: This paper explores the relationship of producer services to market expansion and integration and the division of labor, highlighting the role of services as a complement rather than a substitute to the manufacturing process. The critical role for services emphasized here stands in sharp contrast to the commonly held view that the services sector is stagnant. This paper analyze the implications of the relationship between intermediate services, scale, and specialization, developing a model that incorporates an explicit role for producer services in the linkage, coordination and control of specialized, interdependent operations. This includes consideration of both internal market expansion and changes in the extent of the market due to increased opportunities for trade. This paper use the model to argue that the post-war expansion of the producer services sector in modern industrial economies may be, in part, a result of both the integration of internal markets and the expanded opportunities for trade that have an ongoing integration of various national markets. Post-war productivity gains in manufacturing may also be linked, in part, to this growth of producer services and associated changes in scale. Download link: http://www.jstor.org/stable/2663116
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